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Item 7. Management’s Discussion and Analysis

2023-06-20 compared with 2022-06-16 · 219 added, 243 removed, 347 unchanged (57% of the section changed)

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This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide an understanding of our results of operations, financial condition, and cash flows by focusing on changes in certain key measures from year-to-year, and should be read in conjunction with our consolidated financial statements and the accompanying notes presented in Item 8.

“Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

“Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

This discussion contains forward-looking statements that involve risks and uncertainties.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in Item 1A.

“Risk Factors” of this Annual Report on Form 10-K.

“Risk Factors” in this Annual Report on Form 10-K.

Company Background

Each generation of consumers leaves their mark on culture by establishing new expectations for food and the companies that make it.

Smucker Company, it is our privilege to be at the heart of this dynamic with a diverse portfolio that appeals to each generation of people and pets and is found in nearly 90 percent of U.S.

homes and countless restaurants, including iconic brands consumers have always loved such as Folgers , Jif , and Milk-Bone and new favorites like Café Bustelo , Smucker’s Uncrustables , and Rachael Ray Nutrish .

By continuing to immerse ourselves in consumer preferences and acting responsibly, we will continue growing our business and the positive impact we have on society.

Smucker Company, it is our privilege to make food people and pets love by offering a diverse portfolio of brands available across North America.

We are proud to lead in the coffee, consumer foods, dog snacks, and cat food categories by offering brands consumers trust for themselves and their families each day including Folgers , Dunkin’ , Café Bustelo , Jif , Smucker’s Uncrustables , Smucker’s , Milk-Bone, and Meow Mix .

Through our unwavering commitment to producing quality products, operating responsibly and ethically, and delivering on our purpose, we will continue to grow our business and the positive impact we have on society.

We have three reportable segments:

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Retail Consumer Foods.

retail market segments in total comprised 87 percent of net sales in 2022 and represent a major portion of our strategic focus – the sale of branded food and beverage products with leadership positions to consumers through retail outlets in North America.

retail market segments, our products are primarily sold to food retailers, club stores, discount and dollar stores, online retailers, pet specialty stores, natural foods stores and distributors, drug stores, military commissaries, and mass merchandisers.

retail market segments in total comprised 87 percent of net sales in 2023, and represent a major portion of our strategic

focus – the sale of branded food and beverage products with leadership positions to consumers through retail outlets in North America.

retail market segments, our products are primarily sold to food retailers, club stores, discount and dollar stores, online retailers, pet specialty stores, drug stores, military commissaries, mass merchandisers, and natural foods stores and distributors.

International and Away From Home includes the sale of products distributed domestically and in foreign countries through retail channels and foodservice distributors and operators (e.g., health care operators, restaurants, lodging, hospitality, offices, K-12, colleges and universities, and convenience stores).

Strategic Overview

We remain rooted in our Basic Beliefs of Quality, People, Ethics, Growth, and Independence established by our founder and namesake, Jerome Smucker, more than a century ago.

Today, these Basic Beliefs are the core of our unique corporate culture and serve as a foundation for decision-making and actions.

We have been led by five generations of family leadership, having had only six chief executive officers in 125 years.

Our Basic Beliefs are the foundation for everything we do as an organization.

They serve as guideposts for decision-making and how we interact with our colleagues and partners.

As we have grown, we have remained unwavering in our commitment to these values but also recognize how we are called to act upon them must evolve as the world around us does.

In this spirit, with 2023 marking our 125 th year in business, we introduced an evolution of our Basic Beliefs , building from the original Basic Beliefs , to ensure they are as actionable as possible in order to help our employees continue to bring our unique culture to life.

As such, we evolved our Basic Beliefs to Be Bold, Be Kind, Do the Right Thing, Play to Win, and Thrive Together, which are clear, concise, and actionable .

In addition, we have been led by five generations of family leadership, having had only six chief executive officers in 125 years.

This continuity of management and thought extends to the broader leadership team that embodies the values and embraces the business practices that have contributed to our consistent growth.

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This vision is our long-term direction that guides business priorities and aligns our organization.

We will continue to drive balanced, long-term growth by advancing on the following executional priorities:

• Drive Commercial Excellence | Deliver best-in-class go-to-market execution and commercial delivery;

• Streamline our Cost Infrastructure | Focus on profitability and cost discipline;

• Reshape our Portfolio | Optimize our portfolio to meet the evolving needs of consumers;

• Unleash our Organization to Win | Inspire, enable, and empower our employees while improving diversity at every level.

We will continue to drive balanced, long-term growth by advancing on the following strategic pillars:

• Winning with superior execution;

• Improving profitability and cost discipline;

• Transforming our portfolio;

• Doing our part:

Corporate Responsibility, Sustainability, and ID&E;

• Nurturing and evolving our culture.

Our strategic growth objectives include net sales increasing by a low-single digit percentage and operating income excluding non-GAAP adjustments (“adjusted operating income”) increasing by a mid-single digit percentage on average over the long-term.

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We expect organic growth, including new products, to drive much of our top-line growth, while the contribution from acquisitions will vary from year-to-year.

Our non-GAAP adjustments include amortization expense and impairment charges related to intangible assets, certain divestiture, acquisition, integration, and restructuring costs (“special project costs”), gains and losses on divestitures, the net change in cumulative unallocated gains and losses on commodity and foreign currency exchange derivative activities (“change in net cumulative unallocated derivative gains and losses”), and other one-time items that do not directly reflect ongoing operating

non-GAAP adjustments include amortization expense and impairment charges related to intangible assets, certain divestiture, acquisition, integration, and restructuring costs (“special project costs”), gains and losses on divestitures, the net change in cumulative unallocated gains and losses on commodity and foreign currency exchange derivative activities (“change in net cumulative unallocated derivative gains and losses”), and other infrequently occurring items that do not directly reflect ongoing operating results, such as unrealized gains and losses on the investment in equity securities.

Refer to “Non-GAAP Financial Measures” in this discussion and analysis for additional information.

Due to the unknown and potentially prolonged impact of COVID-19, as well as the challenged supply network and increased labor shortages, we may experience difficulties or be delayed in achieving our long-term strategies;

however, we continue to evaluate the effects on our long-term growth objectives.

Over the past five years, net sales and adjusted earnings per share increased at a compound annual growth rate of 2 percent and 3 percent, respectively, while adjusted operating income decreased at a rate of 1 percent.

Due to the unknown and potentially prolonged impact of the inflationary environment, challenged supply network, and increased labor shortages, we may experience difficulties or be delayed in achieving our long-term strategies;

however, we continue to evaluate the effects of the macroeconomic environment on our long-term growth objectives.

Over the past five years, net sales and adjusted earnings per share increased at a compound annual growth rate of 3 percent and 2 percent, respectively, while adjusted operating income has remained consistent.

These changes were primarily driven by increased at-home consumption for the U.S.

Retail Coffee and U.S.

Retail Consumer Foods segments and the Ainsworth acquisition in 2019, partially offset by the reduction in net sales from the divestitures of the private label dry pet food and natural beverage and grains businesses in 2022, Crisco and Natural Balance businesses in 2021, and the U.S.

Retail Consumer Foods segments, partially offset by the reduction in net sales from the divestitures of the private label dry pet food and natural beverage and grains businesses in 2022, Crisco and Natural Balance businesses in 2021, and the U.S.

baking business in 2019.

Net cash provided by operating activities has increased at a compound annual growth rate of 1 percent over the past five years.

Net cash provided by operating activities has remained consistent over the past five years.

Our cash deployment strategy is to balance reinvesting in our business through acquisitions and capital expenditures with returning cash to our shareholders through the payment of dividends and share repurchases.

Our deployment strategy also includes a significant focus on debt repayment.

On April 28, 2023, we sold certain pet food brands to Post.

The transaction included the Rachael Ray Nutrish, 9Lives, Kibbles ’n Bits, Nature’s Recipe , and Gravy Train brands, as well as our private label pet food business, inclusive of certain trademarks and licensing agreements, manufacturing and distribution facilities in Bloomsburg, Pennsylvania, manufacturing facilities in Meadville, Pennsylvania and Lawrence, Kansas, and approximately 1,100 employees who supported these pet food brands.

Under our ownership, these brands generated net sales of $1.5 billion in 2023, and $1.4 billion in both 2022 and 2021, primarily included in the U.S.

Retail Pet Foods segment.

Net proceeds from the divestiture were $1.2 billion, consisting of $684.7 in cash, net of a preliminary working capital adjustment and cash transaction costs, and approximately 5.4 million shares of Post common stock, valued at $491.6 at the close of the transaction.

Upon completion of this transaction, we recognized a pre-tax loss of $1.0 billion.

The net proceeds and pre-tax loss will be finalized during the first quarter of 2024, upon finalization of the working capital adjustment and cash transaction costs.

On January 31, 2022, we sold the natural beverage and grains businesses to Nexus.

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The transaction did not include Santa Cruz Organic nut butters, fruit spreads, syrups, or applesauce.

Under our ownership, the businesses generated net sales of $106.7 and $143.4 in 2022 and 2021, respectively, primarily included in the U.S.

Under our ownership, the businesses generated net sales of $106.7 in 2022, primarily included in the U.S.

Retail Consumer Foods segment.

Net proceeds from the divestiture were $97.1, which were inclusive of a preliminary working capital adjustment and cash transaction costs, and will be finalized during the first quarter of 2023.

Upon completion of this transaction, we recognized a pre-tax gain of $26.7 during 2022, which was included in other operating expense (income) – net within the Statement of Consolidated Income.

Final net proceeds from the divestiture were $98.7, inclusive of a working capital adjustment and cash transaction costs.

We recognized a pre-tax gain of $28.3 related to the natural beverage and grains businesses, of which $26.7 was recognized during 2022, and the remaining $1.6 was recognized upon finalization of the working capital adjustment during 2023.

On December 1, 2021, we sold the private label dry pet food business to Diamond Pet Foods.

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The transaction did not include any branded products or our private label wet pet food business.

Under our ownership, the business generated net sales of $62.3 and $94.0 in 2022 and 2021, respectively, included in the U.S.

Retail Pet Foods segment.

Final net proceeds from the divestiture were $32.9, which were net of cash transaction costs.

Upon completion of this transaction, we recognized a pre-tax loss of $17.1 during 2022, which was included in other operating expense (income) – net within the Statement of Consolidated Income.

On January 29, 2021, we sold the Natural Balance premium pet food business to Nexus.

The transaction included pet food products sold under the Natural Balance brand, certain trademarks and licensing agreements, and select employees who supported the Natural Balance business.

Under our ownership, the business generated net sales of $62.3 in 2022, included in the U.S.

Retail Pet Foods segment.

Final net proceeds from the divestiture were $33.8, which were net of cash transaction costs and included a working capital adjustment.

Upon completion of the transaction, we recognized a pre-tax loss of $89.5 during 2021, which was included in other operating expense (income) – net within the Statement of Consolidated Income.

On December 1, 2020, we sold the Crisco oils and shortening business to B&G Foods.

The transaction included oils and shortening products sold under the Crisco brand, primarily in the U.S.

and Canada, certain trademarks and licensing agreements, dedicated manufacturing and warehouse facilities located in Cincinnati, Ohio, and approximately 160 employees who supported the Crisco business.

Under our ownership, the business generated net sales of $198.9 in 2021, primarily included in the U.S.

Retail Consumer Foods segment.

Final net proceeds from the divestiture were $530.2, which were net of cash transaction costs and included a working capital adjustment.

Upon completion of the transaction, we recognized a pre-tax gain of $114.8 during 2021, which was included in other operating expense (income) – net within the Statement of Consolidated Income.

The spread of COVID-19 throughout the United States and the international community has had, and will continue to have, an impact on financial markets, economic conditions, and portions of our business and industry.

During calendar year 2021, state governments reopened their economies, while adhering to new guidelines and enhanced safety measures, such as social distancing, face mask protocols, and vaccination requirements.

However, there was a significant number of U.S.

cases in late calendar year 2021 and early calendar year 2022, and as a result, consumers stayed at home more frequently as a precaution, causing the demand related to at-home food consumption to remain elevated, though the impact is of a lesser extent as compared to the prior year.

While we continue to benefit from elevated consumption, the supply chain network remains challenged due to the increased demand and supply pressures, as well as COVID-19 cases and increasing labor shortages, which continue to negatively impact our business and overall industry.

We anticipate this consumer behavior and at-home food consumption may continue, to some extent, through calendar year 2022, dependent on government guidance regarding risk mitigation measures, vaccination rates and effectiveness, and the impact of additional COVID-19 variants.

In September 2021, the U.S.

President issued an executive order applicable to federal contractors and employers with 100 or more employees.

As a result, we announced a vaccination mandate that required all employees to be vaccinated or have received an approved medical or religious exemption as early as December 2021, and no later than March 2022, dependent upon location.

We fully implemented the mandate for salaried employees in December 2021, prior to the U.S.

Supreme Court’s ruling in January 2022 to block the federal mandate.

However, we lifted the mandate that required hourly employees to be vaccinated by March 2022 to support business continuity across our operations.

Furthermore, we have reopened our corporate headquarters in Orrville, Ohio, with appropriate safety protocols, and as a result, occupancy levels have gradually increased during 2022 while our office-based employees transition to a hybrid work schedule.

We continue to monitor the latest public health and government guidance related to COVID-19 and will adjust our approach and safety protocols, as needed.

We have crisis management teams at all our facilities, which continue to monitor their respective locations and implement additional risk mitigation actions, as necessary.

All our production operations remain open, and none have experienced significant disruptions or labor reductions related to COVID-19.

During 2022, we experienced increased disruption in our supply chain network, including the supply of certain ingredients, packaging, and other sourced materials, which has resulted in higher than expected inflation, including escalating transportation and other supply chain costs.

We expect that these inflationary cost increases will continue, but we expect they will be partially mitigated by pricing actions implemented in 2022 and those that we plan to implement in 2023.

It is possible that more significant disruptions could occur if the COVID-19 pandemic continues to impact markets around the world, including the impact of e-commerce pressures on freight charges and potential shipping delays due to supply and demand imbalances, as well as labor shortages.

Final net proceeds from the divestiture were $32.9, net of cash transaction costs.

Upon completion of this transaction during 2022, we recognized a pre-tax loss of $17.1.

Trends Affecting our Business

During 2023, we experienced significant input cost inflation and a dynamic macroeconomic environment, which we anticipate will persist into 2024.

In addition, the higher costs required us to implement material price increases across our business in 2023, and we anticipate the price elasticity of demand will remain elevated into 2024 as consumers continue to respond to broader inflationary pressures.

In response to the inflationary pressures, we have introduced a company-wide transformation initiative to focus on deliberately translating our continuous improvement mindset into sustainable productivity initiatives to grow our profit margins and reinvest in the Company to enable future growth and cost savings.

In addition, we continued to experience disruption in our supply chain network, including labor shortages and the supply of certain ingredients, packaging, and other sourced materials, which has resulted in the continued elevation of transportation

and other supply chain costs during 2023.

It is possible that more significant disruptions could occur if the COVID-19 pandemic and certain geopolitical events continue to impact markets around the world, including the impact of e-commerce pressures on freight charges and potential shipping delays due to supply and demand imbalances, as well as labor shortages.

We also continue to work closely with our customers and external business partners, taking additional actions to ensure safety and business continuity and maximize product availability.

We have maintained production at all our facilities and availability of appointments at distribution centers.

Furthermore, we have implemented measures to manage order volumes to ensure a consistent supply across our retail partners during this period of high demand.

Furthermore, we have implemented measures to manage order volumes to ensure a consistent supply across our retail partners during periods of high demand.

However, to the extent that high demand levels or the current supply chain environment continues to disrupt order fulfillment, we may experience volume loss and elevated penalties.

During 2022, customer order levels remain elevated, primarily across our U.S.

Retail Consumer Foods and U.S.

Retail Coffee segments, in response to the increased consumer demand for our products related to the elevated at-home consumption.

Further, as states have reopened their economies during 2022, our net sales for the away from home channels have continued to improve compared to the initial months of the pandemic.

This trend could moderate during the remainder of calendar year 2022 if cases rise and governments impose additional safety measures that further impact away from home consumption, which is partially dependent upon vaccination rates and effectiveness, as well as the impact of additional COVID-19 variants.

Overall, the impact of COVID-19 remains uncertain and ultimately depends on the length and severity of the pandemic, inclusive of the introduction of new strains of the virus;

the federal, state, and local government actions taken in response;

vaccination rates and effectiveness;

the impact of vaccination requirements;

and the macroeconomic environment.

We will continue to evaluate the nature and extent to which COVID-19 will impact our business, supply chain, including labor availability and attrition, consolidated results of operations, financial condition, and liquidity.

Although we do not have any operations in Russia or Ukraine, we continue to monitor the environment for any significant escalation or expansion of economic or supply chain disruptions, including broader inflationary costs, as well as regional or global economic recessions.

During 2023, the conflict between Russia and Ukraine primarily impacted the price of grains, oils, and fat-based products, which may continue to have an adverse impact on our results of operations into 2024.

Overall, broad-based supply chain disruptions and rising levels of inflation, including the impact of the conflict between Russia and Ukraine, remain uncertain and ultimately depend on the length and severity of the conflict and the pandemic.

We will continue to evaluate the nature and extent to which supply chain disruptions and inflation will impact our business;

supply chain, including labor availability and attrition;

results of operations;

financial condition;

and liquidity.

Results of Operations

This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for the years ended April 30, 2023 and 2022.

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% of net sales 1.8 % 12.8 %

Net income $ 631.7 $ 876.3 (28)

Net income per common share – assuming dilution $ 5.83 $ 7.79 (25)

Net income (loss):

Net income (loss) $ (91.3) $ 631.7 (114)

Net income (loss) per common share – assuming dilution $ (0.86) $ 5.83 (115)

Adjusted gross profit (A)

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Net sales $ 8,529.2 $ 7,998.9 $ 530.3 7 %

Crisco divestiture

— (198.9) 198.9 2

Natural Balance divestiture

— (156.7) 156.7 2

Private label dry pet food divestiture — (62.3) 62.3 1

Natural beverage and grains divestiture — (106.7) 106.7 1

Pet food brands divestiture — (12.2) 12.2 —

Foreign currency exchange

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This measure provides useful information to investors because it enables comparison of results on a year-over-year basis.

Net sales in 2022 was comparable to the prior year, which includes $431.8 of noncomparable net sales in the prior year related to divestitures.

Net sales excluding divestitures and foreign currency exchange increased $410.9, or 5 percent, which was primarily due to higher net price realization across each of our U.S.

Retail segments and for International and Away From Home, reflecting list price increases during 2022.

Net sales in 2023 increased $530.3, or 7 percent, which includes $181.2 of noncomparable net sales in the prior year related to divestitures.

Net sales excluding divestitures and foreign currency exchange increased $737.8, or 9 percent.

Higher net price realization contributed a 14 percentage point increase to net sales, primarily reflecting list price increases for each of our U.S.

Retail segments and for International and Away From Home, which was partially offset by a 5 percentage point decrease from volume/mix, primarily driven by the U.S.

Retail Coffee segment and manufacturing downtime related to the Jif peanut butter product recall.

Operating Income

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Amortization 2.4 2.8

Other intangible assets impairment charges

Other intangible assets impairment charge — 1.9

Other special project costs 0.1 0.1

Loss (gain) on divestitures – net 11.9 (0.1)

Other operating expense (income) – net (0.5) (0.7)

Operating income 1.8 % 12.8 %

12.8 % 17.3 %

Amounts may not add due to rounding.

Gross profit decreased $438.0, or 14 percent, in 2022, reflecting higher costs, primarily driven by increased commodity and ingredient, transportation, packaging, and manufacturing costs, the noncomparable impact related to divestitures, the unfavorable impact of unsaleable inventory and estimated customer returns related to the Jif peanut butter recall, and unfavorable volume/mix, partially offset by higher net pricing.

Operating income decreased $363.0, or 26 percent, primarily reflecting the decrease in gross profit and a $150.4 intangible asset impairment charge in 2022 related to the Rachael Ray Nutrish brand, partially offset by a $162.8 decrease in selling, distribution, and administrative (“SD&A”) expenses, primarily driven by lower marketing spend and incentive compensation expense.

Further offsetting the decrease in operating income is a $36.7 increase in net other operating income, primarily reflecting an anticipated insurance recovery of $49.8, net of the deductible, related to the Jif peanut butter recall that mostly offsets the unfavorable impact of unsaleable inventory, estimated customer returns, and consumer refunds, as discussed in Note 15:

Contingencies.

Our non-GAAP adjustments include amortization expense and impairment charges related to intangible assets, special project costs, gains and losses on divestitures, the change in net cumulative unallocated derivative gains and losses, and other one-time items that do not directly reflect ongoing operating results.

Gross profit increased $101.1, or 4 percent, in 2023, reflecting a favorable net impact of higher net price realization and increased commodity and ingredient, manufacturing, and packaging costs, inclusive of the unfavorable impact related to the Jif peanut butter product recall, partially offset by a lower contribution from volume/mix and the noncomparable impact of the divested natural beverage and grains businesses.

Operating income decreased $866.3, or 85 percent, primarily driven by the $1.0 billion pre-tax loss related to the divestiture of certain pet food brands and a $94.7 increase in selling, distribution, and administrative (“SD&A”) expenses, primarily driven by increased incentive compensation, partially offset by lapping a $150.4 intangible asset impairment charge in the prior year and the increase in gross profit.

Our non-GAAP adjustments include amortization expense and impairment charges related to intangible assets, special project costs, gains and losses on divestitures, the change in net cumulative unallocated derivative gains and losses, and other infrequently occurring items that do not directly reflect ongoing operating results, such as unrealized gains and losses on the investment in equity securities.

Refer to “Non-GAAP Financial Measures” in this discussion and analysis for additional information.

Gross profit excluding non-GAAP adjustments (“adjusted gross profit”) decreased $303.9, or 10 percent, in 2022, reflecting the exclusion of the change in net cumulative unallocated derivative gains and losses and special project costs, as compared to GAAP gross profit.

Adjusted operating income decreased $88.7, or 6 percent, as compared to the prior year, further reflecting the exclusion of the impairment charge and net pre-tax gain on divestitures.

Gross profit excluding non-GAAP adjustments (“adjusted gross profit”) increased $85.0, or 3 percent, in 2023, primarily reflecting the exclusion of special project costs, as compared to GAAP gross profit.

Adjusted operating income decreased $24.7, or 2 percent, as compared to the prior year, further reflecting the exclusion of the pre-tax loss related to the divestiture of certain pet food brands and the prior year impairment charge.

Interest Expense

Net interest expense decreased $16.2, or 9 percent, in 2022, primarily as a result of reduced debt outstanding as compared to the prior year.

For additional information, see “Capital Resources” in this discussion and analysis.

Net interest expense decreased $8.9, or 6 percent, in 2023, primarily due to a net favorable impact of the repayment of Senior Notes and the issuance of debt in the prior year.

For additional information, refer to Note 7:

Debt and Financing Arrangements.

Income taxes decreased $130.0, or 61 percent, in 2023, as compared to the prior year.

The effective income tax rate of 25.1 percent for 2022 varied from the U.S.

statutory income tax rate of 21.0 percent primarily due to state income taxes, including an unfavorable one-time deferred tax impact of an internal legal entity simplification in the third quarter of 2022 to support multiple work locations for office-based employees and our continued strategic activities.

The effective income tax rate of 25.2 percent for 2021 varied from the U.S.

statutory income tax rate of 21.0 percent primarily due to the impact of state income taxes, as well as additional net income tax expense related to the divestitures of the Crisco and Natural Balance businesses.

The effective income tax rate for 2023 varied from the U.S.

statutory income tax rate of 21.0 percent primarily due to an unfavorable permanent impact of the divestiture of certain pet food brands, as well as state income taxes.

The effective income tax rate for 2022 varied from the U.S.

statutory income tax rate of 21.0 percent primarily due to state income taxes, including an unfavorable one-time deferred tax impact of an internal legal entity simplification.

We anticipate a full-year effective income tax rate for 2024 to be approximately 24.2 percent.

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Income Taxes.

Restructuring Activities

Special Project Costs

A restructuring program was approved by the Board during 2021, associated with opportunities identified to reduce our overall cost structure, optimize our organizational design, and support our portfolio reshape.

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During 2021, we substantially completed an organizational redesign related to our corporate headquarters and announced plans to close our Suffolk, Virginia facility as a result of a new strategic partnership for the production of our liquid coffee products.

During 2022, we completed the transition of production to JDE Peet’s, as anticipated.

Furthermore, the restructuring program was expanded during the third quarter of 2022 to include certain costs associated with the recent divestitures of the private label dry pet food and natural beverage and grains businesses, as well as the recently announced plans to close our Ripon, Wisconsin, production facility by the end of calendar year 2022 to further optimize operations for our Consumer Foods business.

We expect to incur costs of approximately $70.0 associated with the restructuring activities planned to date.

More than half of these costs are expected to be other transition and termination costs associated with our cost reduction and margin management initiatives, inclusive of accelerated depreciation, while the remainder represents employee-related costs.

We anticipate the planned activities associated with this restructuring program will be completed by the end of 2023, with the majority of the costs expected to be incurred in the first half of 2023.

During 2022, we completed the transition of production to JDE Peet’s, and expanded the restructuring program to include certain costs associated with the divestitures of the private label dry pet food and natural beverage and grains businesses, as well as the closure of our Ripon, Wisconsin production facility to further optimize operations for our U.S.

Retail Consumer Foods business.

We completed the closure of the Ripon facility during 2023, as planned, and the remaining restructuring activities were completed as of April 30, 2023.

The costs incurred associated with these restructuring activities include other transition and termination costs associated with our cost reduction and margin management initiatives, inclusive of accelerated depreciation, as well as employee-related costs.

We have incurred total cumulative restructuring costs of $63.7, of which $11.1 and $28.5 were incurred during 2023 and 2022, respectively.

For further information, refer to Note 2:

Integration and Restructuring Costs.

Special Project Costs.

Commodities Overview

The raw materials we use in each of our segments are primarily commodities, agricultural-based products, and packaging materials.

The most significant of these materials, based on 2022 annual spend, are green coffee, peanuts, protein meals, grains, and plastic containers.

The most significant of these materials, based on 2023 annual spend, are green coffee, protein meals, peanuts, grains, and plastic containers.

Green coffee, corn, certain meals, oils, and grains are traded on active regulated exchanges, and the price of these commodities fluctuates based on market conditions.

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The price of peanuts, protein meals, and oils are driven primarily by weather, which impacts crop sizes and yield, as well as global demand, especially from large importing countries such as China and India.

In particular, the supply chain for protein meals, fats, corn products, and green coffee has been significantly disrupted by the COVID-19 pandemic, and therefore, the price for these commodities has increased and may continue to increase due to such disruptions.

Furthermore, the price of grains and oils and fat-based products has been impacted by the recent conflict between Russia and Ukraine.

In particular, the supply chain for protein meals, fats, corn products, and green coffee has been significantly disrupted by the COVID-19 pandemic, and therefore, the price for these commodities has

increased and may continue to increase due to such disruptions.

Furthermore, the price of grains and oils and fat-based products has been impacted by the ongoing conflict between Russia and Ukraine.

We frequently enter into long-term contracts to purchase plastic containers, which are sourced mainly from within the U.S.

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The presentation of International and Away From Home represents a combination of all other operating segments that are not individually reportable.

Retail Pet Foods segment primarily includes the domestic sales of Rachael Ray Nutrish, Meow Mix , Milk-Bone , 9Lives, Kibbles ’n Bits , Pup-Peroni, and Nature’s Recipe branded products;

Retail Pet Foods segment primarily includes the domestic sales of Meow Mix , Milk-Bone , Pup-Peroni, and Canine Carry Outs branded products;

Retail Coffee segment primarily includes the domestic sales of Folgers , Dunkin’ , and Café Bustelo branded coffee;

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Under our ownership, the divested Rachael Ray Nutrish, 9Lives, Kibbles ’n Bits, Nature’s Recipe , and Gravy Train brands generated net sales of $1.5 billion and $1.4 billion in 2023 and 2022, respectively, primarily included in the U.S.

Retail Pet Foods segment.

Year Ended April 30,

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Retail Pet Foods

Retail Pet Foods segment net sales decreased $80.2 in 2022, inclusive of the impact of $197.4 of noncomparable net sales in the prior year related to the divested Natural Balance and private label dry pet food businesses.

Retail Pet Foods segment net sales increased $273.8 in 2023, inclusive of the impact of $74.3 of noncomparable net sales in the prior year related to the divested private label dry pet food business and the divestiture of certain pet food brands.

Excluding the noncomparable impact of the divested businesses, net sales increased $348.1, or 13 percent.

Higher net price realization across the portfolio increased net sales by 5 percentage points, primarily reflecting list price increases across the portfolio, partially offset by increased trade spend.

Unfavorable volume/mix decreased net sales by 1 percentage point, primarily driven by declines for dog food, partially offset by growth for cat food and dog snacks.

Segment profit decreased $91.1, primarily reflecting higher commodity and ingredient, transportation, and manufacturing costs and the unfavorable volume/mix, partially offset by the higher net pricing and lower marketing expense.

Higher net price realization increased net sales by 16 percentage points, primarily reflecting list price increases across the portfolio, partially offset by increased trade spend.

The higher net price realization was partially offset by a lower contribution from volume/mix of 3 percentage points, primarily reflecting decreases for cat food and dog food.

Segment profit increased $99.0, primarily reflecting a favorable net impact of higher net price realization and increased commodity and ingredient, packaging, and manufacturing costs, partially offset by higher marketing spend.

Retail Coffee

Retail Coffee segment net sales increased $238.0 in 2023.

Net price realization contributed 6 percentage points to net sales, primarily reflecting list price increases across the portfolio.

Unfavorable volume/mix decreased net sales by 1 percentage point, primarily driven by the Folgers brand, partially offset by the Dunkin’ and Café Bustelo brands.

Segment profit decreased $32.4, reflecting higher commodity costs and the unfavorable volume/mix, partially offset by higher net pricing.

Net price realization contributed a 19 percentage point increase to net sales, primarily reflecting list price increases across the portfolio, partially offset by increased trade spend.

Unfavorable volume/mix decreased net sales by 9 percentage points driven by mainstream and premium coffee.

Segment profit was comparable to the prior year as a favorable net impact of higher net price realization and increased commodity and manufacturing costs was mostly offset by the unfavorable volume/mix.

Retail Consumer Foods

Retail Consumer Foods segment net sales decreased $128.5 in 2022, inclusive of the impact of $211.8 of noncomparable net sales in the prior year related to the divested Crisco and natural beverage and grains businesses.

Retail Consumer Foods segment net sales decreased $76.3 in 2023, inclusive of the impact of $101.8 of noncomparable net sales in the prior year related to the divested natural beverage and grains businesses.

Excluding the noncomparable impact of the divested businesses, net sales increased $25.5, or 2 percent.

Higher net price realization contributed 4 percentage points to net sales, primarily driven by Smucker’s Uncrustables frozen sandwiches and Smucker’s fruit spreads, including the unfavorable impact of estimated customer returns related to the Jif peanut butter recall.

Volume/mix increased net sales by 1 percentage point, reflecting increases for Smucker’s Uncrustables frozen sandwiches and Jif peanut butter, partially offset by a decline for Smucker’s fruit spreads.

Segment profit decreased $48.3, reflecting the noncomparable segment profit in the prior year related to the divested businesses.

Comparable segment profit growth from the higher net pricing, lower marketing spend, and favorable volume/mix was partially offset by higher commodity and ingredient, manufacturing, packaging, and transportation costs.

Segment profit also reflects the unfavorable impact of unsaleable inventory and estimated customer returns, as well as other associated costs related to the Jif peanut butter recall, which were mostly offset by the anticipated insurance recovery, net of the deductible.

Net price realization contributed a

6 percentage point increase to net sales, primarily driven by list price increases for the Smucker’s brand, partially offset by declines for Jif peanut butter, inclusive of the unfavorable impact of customer returns and fees related to the Jif peanut butter product recall.

Volume/mix decreased net sales by 4 percentage points, primarily driven by downtime related to the recall, partially offset by an increase for Smucker’s Uncrustables frozen sandwiches.

Segment profit decreased $71.6, primarily reflecting higher commodity and ingredient, manufacturing, and packaging costs, inclusive of costs related to the recall, and the impact of the noncomparable segment profit in the prior year related to the divested natural beverage and grains businesses, partially offset by higher net pricing and favorable volume/mix.

International and Away From Home

International and Away From Home net sales increased $82.2 in 2022, including the noncomparable impact of $22.6 of net sales in the prior year related to the divested Crisco and natural beverage and grains businesses.

Excluding the noncomparable impact of the divested businesses and foreign currency exchange, net sales increased $87.7, or 9 percent, primarily reflecting a 23 percent increase for the Away From Home operating segment, partially offset by a 2 percent decrease for the International operating segment.

Favorable volume/mix for the combined businesses contributed 6 percentage points to net sales, primarily driven by increases for portion control and coffee products in the away from home channels, partially offset by a decrease for baking mixes and ingredients in the International operating segment.

Net price realization contributed a 3 percentage point increase to net sales for the combined businesses, primarily driven by increases for coffee products in the away from home channels and fruit spread products in the International operating segment.

Segment profit increased $17.9, primarily reflecting higher net pricing, favorable volume/mix, and the favorable foreign currency exchange impact, partially offset by increased commodity costs and the noncomparable segment profit in the prior year related to the divested businesses.

International and Away From Home net sales increased $94.8 in 2023, including $26.3 of unfavorable foreign currency exchange and the noncomparable impact of $5.1 of net sales in the prior year primarily related to the divested natural beverage and grains businesses.

Excluding the noncomparable impact of foreign currency exchange and the divested businesses, net sales increased $126.2, or 12 percent, reflecting a 19 percent and 5 percent increase for the Away From Home and International operating segments, respectively.

Net price realization contributed a 13 percentage point increase to net sales for the combined businesses, primarily driven by increases for coffee products, baking mixes and ingredients, and frozen handheld products, partially offset by the unfavorable impact of customer returns and fees related to the Jif peanut butter product recall.

Segment profit increased $1.3, primarily reflecting a favorable net impact of higher net price realization and increased commodity costs, as well as decreased marketing spend, partially offset by the unfavorable foreign currency exchange.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of funds is cash generated from operations, supplemented by borrowings against our commercial paper program and revolving credit facility.

Total cash and cash equivalents decreased to $169.9 at April 30, 2022, compared to $334.3 at April 30, 2021.

Further benefiting from proceeds from divestitures, total cash and cash equivalents increased to $655.8 at April 30, 2023, compared to $169.9 at April 30, 2022.

The following table presents selected cash flow information.

Year Ended April 30,

Net cash provided by (used for) operating activities

Net cash provided by (used for) operating activities (A)

$ 1,194.4 $ 1,136.3

Net cash provided by (used for) investing activities

Net cash provided by (used for) investing activities (A)

256.2 (355.5)

Net cash provided by (used for) financing activities (964.6) (944.5)

(944.5) (1,943.9)

Net cash provided by (used for) operating activities

Net cash provided by (used for) operating activities (A)

$ 1,194.4 $ 1,136.3

Additions to property, plant, and equipment

Additions to property, plant, and equipment (A)

(477.4) (417.5)

Free cash flow (A)

Free cash flow (B)

$ 717.0 $ 718.8

(A) Free cash flow is a non-GAAP financial measure used by management to evaluate the amount of cash available for debt repayment, dividend distribution, acquisition opportunities, share repurchases, and other corporate purposes.

The $428.7 decrease in cash provided by operating activities in 2022 was primarily driven by greater working capital requirements in 2022, as well as lower net income adjusted for noncash items in the current year.

The increase in cash required to fund working capital, as compared to the prior year, was primarily attributable to timing of payments for accounts payable, changes in accrued incentive compensation and marketing, and an increase in inventory levels compared to the prior year, primarily driven by the recent input cost inflation.

Cash used for investing activities in 2022 consisted primarily of $417.5 in capital expenditures, primarily driven by investments in Smucker’s Uncrustables frozen sandwiches to support the new manufacturing and distribution facilities in McCalla, Alabama, and capacity expansion in Longmont, Colorado, as well as plant maintenance across our facilities.

An increase of $65.4 in our derivative cash margin account balances also contributed to the use of cash in 2022.

These decreases were partially offset by net proceeds received from the divested private label dry pet food and natural beverage and grains businesses of $130.0.

Cash provided by investing activities in 2021 primarily consisted of net proceeds received from the divestitures of the Crisco and Natural Balance businesses of $564.0 and a decrease of $54.0 in our derivative cash margin account balances, partially offset by $306.7 in capital expenditures, which primarily reflected capacity expansion at our Longmont facility, as well as plant maintenance across our facilities.

(A) Net cash provided by (used for) operating activities and net cash provided by (used for) investing activities differ immaterially from the Unaudited Condensed Consolidated Statement of Cash Flow for the year ended April 30, 2023, as previously furnished within the Form 8-K filed with the SEC on June 6, 2023, reflecting the reclassification of certain items, inclusive of additions to property, plant, and equipment.

Free cash flow and the net increase (decrease) in cash and cash equivalents for the year ended April 30, 2023, were not impacted by the reclassifications and remain unchanged.

(B) Free cash flow is a non-GAAP financial measure used by management to evaluate the amount of cash available for debt repayment, dividend distribution, acquisition opportunities, share repurchases, and other corporate purposes.

The $58.1 increase in cash provided by operating activities in 2023 was primarily driven by lower working capital requirements in 2023, partially offset by the $70.0 contribution to our U.S.

qualified defined benefit pension plans during the first quarter of 2023.

The cash required to fund working capital decreased compared to the prior year primarily related to insurance proceeds related to the Jif peanut butter product recall that were received in 2023, a decrease in inventory, and changes in accrued incentive compensation, which were partially offset by a decrease in cash from trade receivables due to timing of sales and payments.

Cash provided by investing activities in 2023 consisted primarily of net proceeds received from the sale of certain pet food brands of $684.7 and a decrease of $37.6 in our derivative cash margin account balances.

These increases were partially offset by $477.4 in capital expenditures, primarily driven by investments in Smucker’s Uncrustables frozen sandwiches to support the new manufacturing and distribution facilities in McCalla, Alabama and capacity expansion in Longmont, Colorado, as well as plant maintenance across our facilities.

Cash used for investing activities in 2022 consisted primarily of $417.5 in capital expenditures, primarily driven by investments in Smucker's Uncrustables frozen sandwiches to support the new manufacturing and distribution facilities, and an increase of $65.4 in our derivative cash margin account balances.

These decreases in 2022 were partially offset by net proceeds received from the divested private label dry pet food and natural beverage and grains businesses of $130.0.

Cash used for financing activities in 2023 consisted primarily of dividend payments of $430.2, purchase of treasury shares of $367.5, and a net decrease in short-term borrowings of $185.9.

Cash used for financing activities in 2022 consisted primarily of long-term debt repayments of $1,157.0, dividend payments of $418.1, and purchase of treasury shares of $270.4, partially offset by $797.6 in long-term debt proceeds and a net increase in short-term borrowings of $97.6.

Cash used for financing activities in 2021 consisted primarily of long-term debt repayments of $700.0, purchase of treasury shares of $678.4, dividend payments of $403.2, and net short-term debt repayments of $166.4.

Supplier Financing Program

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Payment terms with our suppliers, which we deem to be commercially reasonable, range from 0 to 180 days.

During 2020, we entered into an agreement with a third-party administrator to provide an accounts payable tracking system and facilitate a supplier financing program, which allows participating suppliers the ability to monitor and voluntarily elect to sell our payment obligations to a designated third-party financial institution.

We have an agreement with a third-party administrator to provide an accounts payable tracking system and facilitate a supplier financing program, which allows participating suppliers the ability to monitor and voluntarily elect to sell our payment obligations to a designated third-party financial institution.

Participating suppliers can sell one or more of our payment obligations at their sole discretion, and our rights and obligations to our suppliers are not impacted.

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Based on the information known to date, with the exception of the matters discussed below, we do not believe the final outcome of these proceedings would have a material adverse effect on our financial position, results of operations, or cash flows.

In addition to the legal proceedings discussed above, we are currently a defendant in Council for Education and Research on Toxics (“CERT”) v.

Brad Barry LLC, et al., which alleges that we, in addition to nearly eighty other defendants (collectively the “Defendants”) who manufacture, package, distribute, or sell packaged coffee, failed to provide warnings for our coffee products of exposure to the chemical acrylamide as required under Proposition 65.

CERT sought equitable relief, including warnings to consumers, as well as civil penalties in the amount of the statutory maximum of $2,500 per day per violation of Proposition 65.

In addition, CERT asserted that every consumed cup of coffee, absent a compliant warning, was equivalent to a violation under Proposition 65.

In June 2019, the state agency responsible for administering the Proposition 65 program, the California Office of Environmental Health Hazard Assessment (“OEHHA”), approved a regulation clarifying that cancer warnings are not required for coffee under Proposition 65, and in August 2020, the trial court granted the Defendants’ motion for summary judgment based on the regulation.

CERT appealed the ruling in November 2020 to the California Court of Appeals for the Second Appellate District, which is currently pending.

We are also defendants in a series of putative class action lawsuits that were originally filed in federal courts in California, Florida, Illinois, Missouri, New York, Texas, Washington, and Washington D.C.

but have been transferred to the United States District Court for the Western District of Missouri for coordinated pre-trial proceedings.

The plaintiffs assert claims arising under various state laws for false advertising, consumer protection, deceptive and unfair trade practices, and similar

In addition to the legal proceedings discussed above, we are defendants in a series of putative class action lawsuits that were transferred to the United States District Court for the Western District of Missouri for coordinated pre-trial proceedings.

The plaintiffs assert claims arising under various state laws for false advertising, consumer protection, deceptive and unfair trade practices, and similar statutes.

Their claims are premised on allegations that we have misrepresented the number of servings that can be made from various canisters of Folgers coffee on the packaging for those products.

The outcome and the financial impact of these cases, if any, cannot be predicted at this time.

Accordingly, no loss contingency has been recorded for these matters as of April 30, 2022, and the likelihood of loss is not considered probable or estimable.

Accordingly, no loss contingency has been recorded for these matters as of April 30, 2023, and the likelihood of loss is not considered probable or

However, if we are required to pay significant damages, our business and financial results could be adversely impacted, and sales of those products could suffer not only in these locations but elsewhere.

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Product Recall

Subsequent to April 30, 2022, we initiated a voluntary recall of select Jif peanut butter products produced at our Lexington, Kentucky, facility and sold primarily in the U.S., due to potential salmonella contamination.

At that time, we also suspended the manufacturing of Jif peanut butter products at the Lexington facility.

No other products produced at our other facilities were affected by this recall.

As a result, and in accordance with U.S.

GAAP, we recorded reserves of $52.3 in our consolidated financial statements as of April 30, 2022, within our U.S.

Retail Consumer Foods segment, which was inclusive of unsaleable inventory as of April 30, 2022, as well as estimated customer returns and consumer refunds related to net sales in 2022.

We anticipate these costs will be recovered by insurance, and as a result, an insurance receivable of $49.8, net of the deductible, was also recorded as of April 30, 2022.

On June 10, 2022, we announced our plans to resume manufacturing Jif peanut butter products at our Lexington facility.

Further, our Memphis, Tennessee, facility was not affected by the recall and has continued to manufacture Jif peanut butter products.

However, we temporarily paused shipments from the Memphis facility to eliminate confusion while customers cleared their shelves of potentially impacted products manufactured at the Lexington facility.

We will resume shipping from both the Lexington and Memphis facilities and are partnering with retailers to restock Jif peanut butter products as soon as possible.

Based on progress to date, we believe this matter will be substantially resolved during the first quarter of 2023.

Based on our best estimates, we anticipate an unfavorable pre-tax impact of approximately $125.0 in 2023, net of the remaining anticipated insurance recoveries, primarily related to the estimated impact of manufacturing downtime, customer returns and penalties, and unsaleable inventory, as well as other recall related costs.

The recall will primarily impact our U.S.

In May 2022, we initiated a voluntary recall of select Jif peanut butter products produced at our Lexington, Kentucky facility and sold primarily in the U.S., due to potential salmonella contamination.

At that time, we also suspended the manufacturing of Jif peanut butter products at the Lexington facility and temporarily paused shipments from our Memphis, Tennessee facility to eliminate confusion while customers cleared their shelves of potentially impacted products manufactured at the Lexington facility.

No other products produced at our other facilities were affected by the recall.

In June 2022, we resumed manufacturing Jif peanut butter products at our Lexington facility, as well as shipping from our Memphis facility.

We partnered with retailers to restock Jif peanut butter products during the first quarter of 2023, and as of April 30, 2023, we have returned to normal levels.

To date, we have recognized total direct costs associated with the recall of approximately $120.0, net of insurance recoveries, related to customer returns, fees, unsaleable inventory, and other product recall-related costs, primarily within our U.S.

Retail Consumer Foods segment.

Our ultimate loss from the Jif peanut butter recall could differ materially from these estimates, primarily dependent upon the magnitude of lost sales resulting from the unavailability of products for a longer period of time than anticipated, as well as any resulting adverse consumer reaction, including the loss of perceived value and any shift in consumer preferences.

We expect costs associated with the recall to be minimal in 2024.

Further, the FDA issued a Warning Letter on January 24, 2023, following an inspection of our Lexington facility completed in June 2022 in connection with the Jif voluntary recall, identifying concerns regarding certain practices and controls at the facility.

We have responded to the Warning Letter with a detailed explanation of our food safety plan and extensive verification activities to prevent contamination in Jif peanut butter products.

In addition, we have worked diligently to further strengthen our already stringent quality processes, including doubling our finished product testing and tripling our environmental testing to verify the efficacy of our actions.

The FDA or other agencies may nonetheless conclude that certain practices or controls were not in compliance with the Federal Food, Drug, and Cosmetic Act or other laws.

Any potential regulatory action based on such an agency conclusion could result in the imposition of injunctive terms and monetary payments that could have a material adverse effect on our business, reputation, brand, results of operations, and financial performance, as well as affect ongoing consumer litigation associated with the voluntary recall of Jif peanut butter products.

The outcome and financial impact of the ongoing consumer litigation or any potential regulatory action associated with the Jif voluntary recall cannot be predicted at this time.

Accordingly, no loss contingency has been recorded for these matters as of April 30, 2023, and the likelihood of loss is not considered probable or estimable.

Capital Resources

The following table presents our capital structure.

Current portion of long-term debt

$ — $ 1,152.9

Short-term borrowings $ — $ 180.0

Long-term debt, less current portion 4,310.6 3,516.8

Long-term debt 4,314.2 4,310.6

Total debt $ 4,314.2 $ 4,490.6

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Total capital $ 11,605.0 $ 12,630.7

During the second quarter of 2022, we completed an offering of $800.0 in Senior Notes due March 15, 2032, and September 15, 2041.

The Senior Notes included $7.2 of capitalized debt issuance costs and $2.4 of offering discounts, and which are amortized to interest expense over the life of the debt.

The net proceeds from the offering were primarily used to repay $750.0 in principal of the Senior Notes due October 15, 2021.

Furthermore, during the first quarter of 2022, we prepaid $400.0 in principal of the Senior Notes due March 15, 2022, and as a result, we recognized a net loss on extinguishment of $6.9, which primarily consisted of a make-whole payment and was included in other income (expense) – net in the Statement of Consolidated Income.

We have available a $2.0 billion unsecured revolving credit facility with a group of 11 banks that matures in August 2026.

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The commercial paper program is backed by our revolving credit facility and reduces what we can borrow under the revolving credit facility by the amount of commercial paper outstanding.

paper is used as a continuing source of short-term financing for general corporate purposes.

As of April 30, 2022, we had $180.0 of short-term borrowings outstanding, all of which were issued under our commercial paper program, at a weighted-average interest rate of 0.65 percent.

Commercial paper is used as a continuing source of short-term financing for general corporate purposes.

As of April 30, 2023, we did not have a balance outstanding under the commercial paper program.

We are in compliance with all our debt covenants as of April 30, 2023, and expect to be for the next 12 months.

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Debt and Financing Arrangements.

During 2022, we repurchased 2.0 million common shares under a repurchase plan authorized by the Board for $262.5.

At April 30, 2022, approximately 5.8 million common shares remain available for repurchase pursuant to the Board’s authorizations.

There is no guarantee as to the exact number of shares that may be repurchased or when such purchases may occur.

During 2021, we repurchased 5.8 million common shares under a repurchase plan authorized by the Board for $671.9.

Dividend payments were $430.2 and $418.1 in 2023 and 2022, respectively, and quarterly dividends declared per share were $4.08 and $3.96 in 2023 and 2022, respectively.

The declaration of dividends is subject to the discretion of our Board and depends on various factors, such as our net income, financial condition, cash requirements, future events, and other factors deemed relevant by the Board.

During the fourth quarter of 2023, we repurchased approximately 2.4 million common shares for $358.0 pursuant to the authorizations of the Board.

Under the repurchase plan, a total of approximately 3.5 million common shares remain available for repurchase as of April 30, 2023.

In accordance with the Inflation Reduction Act, a one percent excise tax was applied to share repurchases after December 31, 2022.

As a result, an excise tax of $3.6 was accrued on the repurchased shares during 2023, and included within additional capital in our Consolidated Balance Sheet.

A total of 2.0 million common shares were repurchased for $262.5 during 2022 under authorizations by the Board, and no excise tax was accrued on the repurchased shares.

All other share repurchases during 2023 and 2022 consisted of shares repurchased from stock plan recipients in lieu of cash payments.

On March 2, 2023, we also entered into a share repurchase plan (the “10b5-1 Plan”) established in accordance with Rule 10b5-1 of the Exchange Act in connection with the remaining common shares authorized for repurchase by the Board.

In accordance with the 10b5-1 Plan, our designated broker has the authority to repurchase approximately 2.4 million commons shares, which commenced on the consummation of the sale of certain pet food brands on April 28, 2023, and will expire 45 calendar days after the closure of the transaction, which is in the first quarter of 2024, unless terminated earlier in accordance with the terms of the 10b5-1 Plan.

Subsequent to April 30, 2023, we repurchased approximately 2.4 million common shares for $362.8 under this 10b5-1 Plan and approximately 1.1 million common shares remain available for repurchase.

An excise tax of $3.6 was also accrued on the repurchased shares during the first quarter of 2024.

In November 2021, we announced plans to invest $1.1 billion to build a new manufacturing facility and distribution center in McCalla, Alabama dedicated to production of Smucker’s Uncrustables frozen sandwiches.

Construction of this facility began in the third quarter of 2022, with production expected to begin in calendar year 2025.

Construction of this facility began in 2022, with production expected to begin in calendar year 2025.

The project demonstrates our commitment to meet increasing demand for this highly successful product and deliver on our strategy to focus on brands with the most significant growth opportunities.

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Absent any material acquisitions or other significant investments, we believe that cash on hand, combined with cash provided by operations, borrowings available under our revolving credit facility and commercial paper program, and access to capital markets, will be sufficient to meet our cash requirements for the next 12 months, including the payment of quarterly dividends, principal and interest payments on debt outstanding, and capital expenditures.

However, as a result of the current economic environment, we may experience an increase in the cost or the difficulty to obtain debt or equity financing, or to refinance our debt in the future.

However, as a result of the current macroeconomic environment, we may experience an increase in the cost or the difficulty to obtain debt or equity financing, or to refinance our debt in the future.

We continue to evaluate these risks, which could affect our financial condition or our ability to fund operations or future investment opportunities.

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Total 2024 2025-2026 2027-2028 2029 and

Long-term debt obligations, including current portion (A)

Long-term debt obligations (A)

$ 4,350.0 $ — $ 1,000.0 $ 500.0 $ 2,850.0

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Total $ 8,178.5 $ 1,921.5 $ 1,487.9 $ 818.2 $ 3,950.9

(A) Long-term debt obligations, including current portion, excludes the impact of offering discounts, make-whole payments, and debt issuance costs.

(A) Long-term debt obligations excludes the impact of offering discounts, make-whole payments, and debt issuance costs.

(B) Interest payments consists of the interest payments for our fixed-rate Senior Notes.

(C) Purchase obligations includes agreements that are enforceable and legally bind us to purchase goods or services, which primarily consist of obligations related to normal, ongoing purchase obligations in which we have guaranteed payment to ensure availability of

raw materials.

We expect to receive consideration for these purchase obligations in the form of materials and services.

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In addition, we have other liabilities which consisted primarily of projected commitments associated with our defined benefit pension and other postretirement benefit plans, as disclosed in Note 8:

Pensions and Other Postretirement Benefits, including expected contributions of $80.0 in 2023 to our qualified defined benefit pension plans.

Pensions and Other Postretirement Benefits.

The total liability for our unrecognized tax benefits and tax-related net interest at April 30, 2023, was $6.3 under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes ;

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We use non-GAAP financial measures including:

net sales excluding divestitures and foreign currency exchange, adjusted gross profit, adjusted operating income, adjusted income, adjusted earnings per share, earnings before interest, taxes, depreciation, amortization, and impairment charges related to intangible assets (“EBITDA (as adjusted)”), and free cash flow, as key measures for purposes of evaluating performance internally.

net sales excluding divestitures and foreign currency exchange, adjusted gross profit, adjusted operating income, adjusted income, adjusted earnings per share, and free cash flow, as key measures for purposes of evaluating performance internally.

We believe that investors’ understanding of our performance is enhanced by disclosing these performance measures.

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The Board also utilizes certain non-GAAP financial measures as components for measuring performance for incentive compensation purposes.

Non-GAAP financial measures exclude certain items affecting comparability that can significantly affect the year-over-year assessment of operating results, which include amortization expense and impairment charges related to intangible assets, special project costs, gains and losses on divestitures, the change in net cumulative unallocated derivative gains and losses, and other one-time items that do not directly reflect ongoing operating results.

Non-GAAP financial measures exclude certain items affecting comparability that can significantly affect the year-over-year assessment of operating results, which include amortization expense and impairment charges related to intangible assets, special project costs, gains and losses on divestitures, the change in net cumulative unallocated derivative gains and losses, and other infrequently occurring items that do not directly reflect ongoing operating results, such as unrealized gains and losses on the investment in equity securities.

Income taxes, as adjusted is calculated using an adjusted effective income tax rate that is applied to adjusted income before income taxes and reflects the exclusion of the previously discussed items, as well as any adjustments for one-time tax related activities, when they occur.

While this adjusted effective income tax rate does not generally differ materially from our GAAP effective income tax rate, certain exclusions from non-GAAP results, such as the one-time deferred state tax impact of the internal legal entity simplification during 2022, can significantly impact our adjusted effective income tax rate.

While this adjusted effective income tax rate does not generally differ materially from our GAAP effective income tax rate, certain exclusions from non-GAAP results, such as the unfavorable permanent impact of the divestiture of certain pet food brands during 2023, and the one-time deferred state tax impact of the internal legal entity simplification during 2022, can significantly impact our adjusted effective income tax rate.

These non-GAAP financial measures are not intended to replace the presentation of financial results in accordance with U.S.

Rather, the presentation of these non-GAAP financial measures supplements other metrics we use to internally evaluate our businesses and facilitate the comparison of past and present operations and liquidity.

Rather, the presentation of these non-GAAP financial measures supplements other metrics we use to internally evaluate our business and facilitate the comparison of past and present operations and liquidity.

These non-GAAP financial measures may not be comparable to similar measures used by other companies and may exclude certain nondiscretionary expenses and cash payments.

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Amortization 206.9 223.6

Other intangible assets impairment charges 150.4 3.8

Gain on divestitures – net (9.6) (25.3)

Other intangible assets impairment charge — 150.4

Loss (gain) on divestitures – net 1,018.5 (9.6)

Change in net cumulative unallocated derivative gains and losses 21.4 23.4

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Adjusted operating income $ 1,415.4 $ 1,440.1

$ 1,440.1 $ 1,528.8

% of net sales 16.6 % 18.0 %

Net income reconciliation:

Net income $ 631.7 $ 876.3

Net income (loss) reconciliation:

Net income (loss) $ (91.3) $ 631.7

Income tax expense 82.1 212.1

Amortization 206.9 223.6

Other intangible assets impairment charges 150.4 3.8

Gain on divestitures – net (9.6) (25.3)

Other intangible assets impairment charge — 150.4

Loss (gain) on divestitures – net 1,018.5 (9.6)

Change in net cumulative unallocated derivative gains and losses 21.4 23.4

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Other special project costs (A)

Other one-time items:

Pension plan termination settlement charges (B)

Other infrequently occurring items:

Unrealized loss (gain) on investment in equity securities (B)

Adjusted income before income taxes $ 1,252.5 $ 1,260.1

$ 1,260.1 $ 1,343.5

Income taxes, as adjusted 301.7 297.9

Adjusted income $ 950.8 $ 962.2

Weighted-average shares – assuming dilution 108.4 112.4

Adjusted earnings per share – assuming dilution

$ 8.88 $ 9.12

EBITDA (as adjusted) reconciliation:

Net income $ 631.7 $ 876.3

Income tax expense 212.1 295.6

Interest expense – net 160.9 177.1

Depreciation 235.5 219.5

Amortization 223.6 233.0

Other intangible assets impairment charges 150.4 3.8

EBITDA (as adjusted)

Weighted-average shares – assuming dilution (C)

Adjusted earnings per share – assuming dilution (C)

$ 8.92 $ 8.88

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Free cash flow $ 717.0 $ 718.8

(A) Special project costs include certain divestiture, acquisition, integration, and restructuring costs, which are recognized in cost of products sold and other special project costs.

(A) Special project costs include certain restructuring costs, which are recognized in cost of products sold and other special project costs.

For more information, see Note 2:

Integration and Restructuring Costs and Note 4:

Special Project Costs and Note 4:

Reportable Segments.

(B) Represents the nonrecurring pre-tax settlement charges of $29.6 related to the purchase of an irrevocable group annuity contract to transfer our Canadian defined benefit pension plan obligation to an insurance company (the “Canadian buy-out contract” ) .

For additional information, see Note 8:

Pensions and Other Postretirement Benefits .

(B) Unrealized loss (gain) on investment in equity securities includes unrealized gains and losses on the change in fair value on our investment in Post common stock.

For more information, see Note 3:

Divestitures and Note 10:

Other Financial Instruments and Fair Value Measurements.

(C) Adjusted earnings per common share – assuming dilution for 2023 and 2022 was computed using the treasury stock method.

Further, in 2023, the weighted-average shares – assuming dilution differed from our GAAP weighted-average common shares outstanding – assuming dilution as a result of the anti-dilutive effect of our stock-based awards, which were excluded from the computation of net loss per share – assuming dilution.

For more information see Earnings Per Share in Note 1:

Accounting Policies and Note 5:

Earnings Per Share.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

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Differences between estimated expenditures and actual performance are recognized as a change in estimate in a subsequent period.

During 2022, 2021, and 2020, subsequent period adjustments were less than 3 percent of both consolidated pre-tax income and cash provided by operating activities.

During 2023, 2022, and 2021, subsequent period adjustments were less than 3 percent of both consolidated pre-tax adjusted income and cash provided by operating activities.

Income Taxes:

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Further, we have not repatriated foreign cash to the U.S during 2023.

For additional information, see Note 13:

Income Taxes.

Goodwill and Other Indefinite-Lived Intangible Assets:

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Changes in forecasted operations and other estimates and assumptions could impact the assessment of impairment in the future.

As a result of the divestiture of certain pet food brands on April 28, 2023, we disposed of $790.3 of goodwill, primarily within the Pet Foods reporting unit.

The amount of goodwill allocated to the disposal group was determined based on a relative fair value analysis, utilizing a discounted cash flow valuation technique, which required management to make certain estimates and assumptions utilizing Level 3 inputs, consistent with our approach for an impairment test.

At April 30, 2023, goodwill totaled $5.2 billion.

Goodwill is substantially concentrated within the U.S.

Retail Pet Foods, U.S.

Retail Coffee, and U.S.

Retail Coffee, U.S.

Retail Pet Foods, and U.S.

Retail Consumer Foods segments.

During 2022, no goodwill impairment was recognized as a result of the evaluations performed throughout the year.

During 2023, no goodwill impairment was recognized as a result of the evaluations performed throughout the year, inclusive of an assessment performed following the divestiture.

The estimated fair value of each of our reporting units for which there is a goodwill balance was substantially in excess of its carrying value as of the annual test date, with the exception of the Pet Foods reporting unit, for which its fair value exceeded its carrying value by approximately 7 percent.

A sensitivity analysis was performed for the Pet Foods reporting unit, assuming a hypothetical 50-basis-point decrease in the expected long-term growth rate or a hypothetical 50-basis-point increase in the weighted-average cost of capital, and both scenarios independently yielded an estimated fair value for the Pet Foods reporting unit below carrying value.

However, subsequent to the annual test, the reporting units impacted by the divestiture were assessed for impairment as of April 30, 2023, and we concluded there were no indicators of impairment, as the estimated fair values were in excess of the carrying values for all reporting units.

For additional information, see Note 3:

Divestitures and Note 6:

Goodwill and Other Intangible Assets.

Other indefinite-lived intangible assets, consisting entirely of trademarks, are also tested for impairment at least annually and more often if events or changes in circumstances indicate their carrying values may be below their fair values.

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As of April 30, 2023, the estimated fair value was substantially in excess of the carrying value for the majority of these leading brand trademarks, and in all instances, the estimated fair value exceeded the carrying value by greater than 10 percent.

During 2022, we recognized an impairment charge of $150.4 related to the Rachael Ray Nutrish brand within the U.S.

Retail Pet Foods segment, representing the extent to which the carrying value exceeded the estimated fair value.

We reassessed the long-term strategic expectations for the Rachael Ray Nutrish brand and reclassified this brand as a finite-lived intangible asset on January 31, 2022.

The carrying value of the goodwill within the U.S.

Retail Pet Foods segment was $2.4 billion as of April 30, 2022, and remains susceptible to future impairment charges due to narrow differences between fair value and carrying value, which is primarily attributable to the recognition of these assets at fair value resulting from impairment charges in recent years.

Any significant adverse change in our near- or long-term projections or macroeconomic conditions could result in future impairment charges which could be material.

For additional information, see Note 6:

Goodwill and Other Intangible Assets.

Furthermore, we continue to evaluate the potential impact of COVID-19 on the fair value of our goodwill and indefinite-lived intangible assets.

While we concluded there were no indicators of impairment as of April 30, 2022, any significant sustained adverse change in consumer purchasing behaviors, government restrictions, financial results, or macroeconomic conditions could result in future impairment.

Pension and Other Postretirement Benefit Plans:

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We, along with third-party actuaries and investment managers, review all of these assumptions on an ongoing basis to ensure that the most reasonable information available is being considered.

We employ a total return on investment approach for the defined benefit pension plans’ assets.

A mix of equity, fixed-income, and alternative investments is used to maximize the long-term rate of return on assets for the level of risk.

In determining the expected long-term rate of return on the defined benefit pension plans’ assets, we consider the historical rates of return, the nature of investments, the asset allocation, and expectations of future investment strategies.

The actual rate of return was a loss of 2.3 percent and a loss of 4.6 percent for the years ended April 30, 2023 and 2022, respectively, which excludes administrative and investment expenses.

We utilize a spot rate methodology for the estimation of service and interest cost for our plans by applying specific spot rates along the yield curve to the relevant projected cash flows to provide a better estimate of service and interest costs.

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defined benefit pension plans of 5.19 percent to determine benefit obligation, 5.38 percent to determine service cost, and 5.08 percent to determine interest cost.

For the Canadian defined benefit pension plans, we will use weighted-average discount rates of 2.41 percent to determine benefit obligation and 2.33 percent to determine interest cost.

As of April 30, 2023, a 50 basis-point decrease in the discount rate assumption would increase the 2024 net periodic benefit cost by approximately $0.4, and the benefit obligation would increase by approximately $18.4.

In addition, we anticipate using an expected rate of return on plan assets of 4.51 percent and 1.60 percent for the U.S.

and Canadian defined benefit pension plans, respectively.

A 50 basis-point decrease in the expected

rate of return on plan assets assumption would increase the 2023 net periodic benefit cost by approximately $1.8.

In addition, we anticipate using an expected rate of return on plan assets of 5.35 percent for the U.S.

defined benefit pension plans.

A 50 basis-point decrease in the expected rate of return on plan assets assumption would increase the 2024 net periodic benefit cost by approximately $1.5.

For the Canadian defined benefit pension plans, we will use weighted-average discount rates of 4.59 percent to determine benefit obligation and 4.65 percent to determine interest cost for 2024 expense recognition.

In addition, we anticipate using an expected rate of return on plan assets of 3.30 percent for the Canadian defined pension plans.

A change in the assumptions used for the Canadian defined benefit pension plans would not have a material impact on the net periodic benefit cost and benefit obligation.

For additional information, see Note 8:

Pensions and Other Postretirement Benefits.

FORWARD-LOOKING STATEMENTS

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Readers are cautioned not to place undue reliance on any forward-looking statements, as such statements are by nature subject to risks, uncertainties, and other factors, many of which are outside of our control and could cause actual results to differ materially from such statements and from our historical results and experience.

These risks and uncertainties include, but are not limited to, those set forth under the caption “Risk Factors” of this Annual Report on Form 10-K, as well as the following:

• the impact of the COVID-19 pandemic on our business, industry, suppliers, customers, consumers, employees, and communities;

• disruptions or inefficiencies in our operations or supply chain, including any impact caused by product recalls (including the recent Jif peanut butter recall), political instability, terrorism, armed hostilities (including the recent conflict between Russia and Ukraine), extreme weather conditions, natural disasters, pandemics (including the COVID-19 pandemic), or other calamities;

• risks related to the availability of, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging, and transportation;

• the impact of food security concerns involving either our products or our competitors’ products, including product recalls;

These risks and uncertainties include, but are not limited to, those set forth under the caption “Risk Factors” in this Annual Report on Form 10-K, as well as the following:

• the effect of the sale of certain pet food brands on our ability to retain key personnel and to maintain relationships with customers, suppliers, and other business partners, and any impact to the value of our investment in Post common stock or our ability to dispose of some or all of such securities at favorable market prices;

• disruptions or inefficiencies in our operations or supply chain, including any impact caused by product recalls (including the Jif peanut butter product recall), political instability, terrorism, armed hostilities (including the ongoing conflict between Russia and Ukraine), extreme weather conditions, natural disasters, pandemics (including COVID-19), work stoppages or labor shortages, or other calamities;

• risks related to the availability, and cost inflation in, supply chain inputs, including labor, raw materials, commodities, packaging, and transportation;

• the impact of food security concerns involving either our products or our competitors’ products, including changes in consumer preference, consumer litigation, actions by the FDA or other agencies, and product recalls;

• risks associated with derivative and purchasing strategies we employ to manage commodity pricing and interest rate risks;

• the availability of reliable transportation on acceptable terms, including any impact of the COVID-19 pandemic;

• the availability of reliable transportation on acceptable terms;

• our ability to achieve cost savings related to our restructuring and cost management programs in the amounts and within the time frames currently anticipated;

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• our ability to implement and realize the full benefit of price changes, and the impact of the timing of the price changes to profits and cash flow in a particular period;

• the success and cost of marketing and sales programs and strategies intended to promote growth in our businesses, including product innovation;

• the success and cost of marketing and sales programs and strategies intended to promote growth in our business, including product innovation;

• general competitive activity in the market, including competitors’ pricing practices and promotional spending levels;

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Readers are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this Annual Report on Form 10-K.

We do not undertake any obligation to update or revise these forward-looking statements to reflect new events or circumstances subsequent to the filing of this Annual Report on Form 10-K.

We do not undertake any obligation to update or revise these forward-looking statements to reflect new events or circumstances subsequent to the filing in this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis